Mission digital: How Coinbase is reshaping Canada’s crypto landscape - MoneySense (2024)

Photo courtesy of Coinbase

If you don’t follow crypto, you may have missed this news in April: Coinbase became the largest cryptocurrency exchange to be registered as a restricted dealer in Canada, as well as the first international crypto exchange to receive this status.

Coinbase Global Inc., based in the U.S., is a publicly traded company that has more than seven million users and operates in over 100 countries. Coinbase formally launched in Canada in August 2023, though it has offered services here since 2015. For the past few years, the company has been working with Canadian securities regulators to develop a crypto regulatory framework, and to ensure its platform is compliant with strict rules around investment limits, segregating customer assets, trading on margin, and more.

Coinbase’s ongoing challenges with U.S. regulators

Coinbase’s successful registration in Canada contrasts sharply with its ongoing legal battle with the Securities and Exchange Commission (SEC) in the U.S. In July 2022, Coinbase petitioned the commission to propose rules to identify which digital assets are securities, and to govern the regulation of securities offered and traded using digital channels. The SEC has said that existing securities law is sufficient, but Coinbase called it “ill-fitting.” (Catch up on the Coinbase-vs.-SEC timeline.)

The conflict hasn’t halted Coinbase’s expansion—in 2023, it became licensed and/or registered in Bermuda, Spain, France and Singapore and launched in Canada and Brazil.

Coinbase Canada’s CEO, Lucas Matheson, was in Toronto recently as a keynote speaker at the Collision tech conference. Before joining Coinbase in 2022, he was at Shopify for five years, most recently as senior director of operations, and he co-founded Pinshape, a marketplace for 3D-printed products, along with other roles in finance and investing.

We talked to Matheson about what crypto regulation means for investors, Coinbase’s growing presence in Canada, the future of Web3 and more.

Jaclyn Law: In April, Coinbase became a restricted dealer in Canada. What does that mean for the business?

Lucas Matheson: The most important thing is that we have regulatory clarity and that we’re registered. That means we’ve gone through a series of submissions with our regulators to explain: How does our business work? How do our operations work? How do we service our clients, and how do we ensure that conflicts of interest are managed and that our customers are informed?

Interestingly, for me as somebody who’s been in tech for quite some time but never had the chance to work with the government, we’re very much aligned with our regulators, in terms of what we want to accomplish. How we get there is something we’re still working on, but generally, it’s an opportunity for us to collaborate and build strong regulatory frameworks.

The shift towards decentralized finance

JL: You came to Collision to talk about disrupting Canada’s financial industry. What were the highlights?

LM: One thing we’re trying to help people understand is why the world’s moving away from highly centralized financial systems into decentralized financial systems. There’s a lot of incredible technology that’s allowed us to do that. In 2009, we met bitcoin. And we realized, I think for the first time, how to solve some of the inadequacies of our traditional system.

Our industry is over-indexed on how incredible and complicated this technology is. What we’ve sort of missed are the underlying values powering the shift into decentralized systems. Why is the world doing this? It’s not just because the technology is available. It’s because the world is looking for a system that has a different incentive structure, one that’s better aligned with our values and interests.

What I mean by that is values around transparency. Some of the incentives built into our traditional system are gated from us, so we don’t fully appreciate, when we swipe our credit card, that 10 or more intermediaries power that transaction, each taking a profit. Our traditional system was set up to compartmentalize risk into different functions of finance, to mitigate risk and conflicts of interest. This has created a very slow, bureaucratic, cumbersome process, when you think of standing in line at a bank, filling out a paper-and-pen form to send a wire transfer and waiting three days.

The system update Coinbase is trying to help the world understand is not just about this great technology—it’s about a shift into transparency and inclusion. You know, 15% of Canadians are considered underbanked or unbanked. Globally, it’s 1.7 billion people.

JL: Coinbase is a crypto exchange, but it also has an ambitious mission around access to financial services. Can you tell me about that?

LM: Our founder, Brian Armstrong, previously lived in Argentina, and he witnessed the banking and financial challenges in that part of the world. He founded Coinbase over 10 years ago, and our mission is to increase economic freedom in the world. We’re doing that by providing citizens in over 100 countries access to digital assets.

We think of “economic freedom” as helping people get access to basic financial services, around concepts like self-custody [holding, managing and controlling assets yourself]. Self-custody is something humans have done for thousands of years, with everything we own. We think about this system update as an opportunity to help more people participate in a system that works for them. What most people want is a system that they trust, meaning that we understand how it works, and that it works with our best interests in mind.

As a company, we focus on three segments of our business. The first is helping consumers access digital assets. On the Coinbase app, people can sign up and go through a KYC [know your client] process, like they would at a traditional bank, and buy digital assets. We also offer a self-custody wallet called Coinbase Wallet, where you can store and manage digital assets and participate in Web3.

The second segment is institutional clients. We’re helping more institutions get access to digital assets for custody through staking and exchange services.

And our third focus is empowering developers to build on Web3. Coinbase recently launched a Layer 2 protocol, which is a protocol built on Ethereum that allows for fast, easy, cheap transactions, leveraging the platform’s security. This has helped thousands of developers build utilities and applications on top of Ethereum, on blockchain.

Across these three segments, our goal is to help as many people as we can participate on-chain.

What Coinbase is doing in Canada

JL: Coinbase has chosen Canada as one of its “Go Deep” markets, meaning the company will launch infrastructure and public-facing products and services here. Why did it choose Canada?

LM: Coinbase operates in geographies with regulatory clarity, which is important for investors and governments to trust that the system is supervised and regulated, and that investors are protected. In Canada, we were fortunate to have regulators who stepped in very early to provide regulatory clarity after the Quadriga collapse. So, we’ve had a head start around building a regulatory framework, and that’s set us up for success in terms of helping Canadians access the digital economy.

JL: Canada is the third-most “crypto aware” country, according to a Coinbase survey. What does that mean?

LM: We asked Canadians if they’re aware of and understand crypto assets, and Canada is the third-most crypto-aware country of all the geographies we operate in. I think there’s a couple of good reasons for that. One is that Ethereum, the second-largest token or crypto project in the world, was founded in Waterloo and Toronto. So, we have deep roots in Canada around Web3, with an incredible amount of developers building applications. Coinbase Ventures [Coinbase’s investment arm] has invested in almost 10 companies here so far. But generally, I think Canadians are very technically savvy, because we have a highly educated population.

Working with Canadian securities regulators

JL: Coinbase has been working with regulators and policy-makers to develop a crypto regulatory framework for Canadians. What does that process look like?

LM: Some advantages we have in Canada are that we’re really kind people, we have an opportunity to collaborate, and our regulators understand there’s a long path ahead. We haven’t solved everything. We’re building a plane and flying it at the same time. Our regulators have been very stringent in their approach, but we meet with them regularly—we’ve been working on our restricted dealer registration for years. We’ve invested a significant amount of time into educating them on how the technology works, how our policies work, how we make sure clients are informed, how we safeguard assets—all the different aspects of risks around the platform.

A good example is CIRO, which we’re working with now on our full investment dealer registration. CIRO provided our industry access to spend time with them every month or two, on a working group, collaborating and exchanging ideas and opinions about how to build a strong regulatory framework for Canada.

So, we’re very fortunate to have regulators open to working with us and open to learning. That’s been the hardest part for a lot of regimes around the world—crypto, from a regulatory and compliance perspective, takes a significant amount of effort to understand. We’re fortunate that Canada’s regulators have been doing this for over three years.

JL: What are the next steps for this framework?

LM: Our regulators issue “staff notices.” This is not law, but it is guidance on the framework that regulators have set out. We’ve been working towards satisfying the terms of those requirements.

For a little bit of context, what Canadian regulators did—which was fairly unique in the world—was introduce a “pre-registration undertaking.” This was effectively a request for crypto trading platforms in Canada to sign an agreement and commit to getting registered, or leave. So, we saw a number of crypto exchanges exit the Canadian market, and we saw a number of exchanges agree to satisfy the terms of the staff notices and progress towards a compliant platform.

We’ve had to adapt many of our internal policies to comply. But, ultimately, this work is incredibly important, because having regulatory clarity in Canada is helpful for everyone, including the government, institutions and the public.

JL: What does regulatory clarity around crypto mean for individual investors?

LM: Eighty per cent of wealth in Canada is managed by professional investment advisors and money managers. [The wealth] industry currently doesn’t participate in the digital economy; we’re not seeing wealth advisors solicit opportunities for Canadians to invest [in crypto]. They shouldn’t advise clients on things they don’t deeply understand, so an opportunity for Coinbase is to help advisors understand digital assets and break down misconceptions, so they can have really good conversations with their clients about how to diversify responsibly into the digital economy.

I’m very excited to help investment advisors, professional money managers and family offices to understand the opportunity and leverage our institutional products with Coinbase Prime [Coinbase’s crypto exchange for institutional clients] to get access to the digital economy safely.

JL: You’ve also been in discussions with major Canadian banks about participating in the crypto economy. Can you talk about that?

LM: Currently, Canada’s big banks don’t provide banking services to crypto trading platforms. That’s been a challenge for our entire industry. So, while we have strong regulatory clarity, and Coinbase is registered as a restricted dealer in Canada, it’s been very challenging for us. We don’t currently work with any of the major banks. The Big Six banks have 93% of the banking market and control 85% of the domestic assets in Canada, and it’s important that they get ahead and get access to this technology, so that Canadians can get better exposure securely through partners they trust.

JL: In February, Coinbase joined the Canadian Web3 Council, which advocates for the growth of Web3. Can you tell me about your work with the council?

LM: Canada has two [Web3] industry associations: the Canadian Web3 Council and the Canadian Blockchain Consortium. They help connect leaders across the country to align on opportunities to influence our government and policies.

We have a very collaborative relationship with crypto trading platforms in Canada and anyone building in Web3. We support efforts to educate our government, which is one of the most challenging things our industry faces. It’s been very challenging to prioritize crypto within our federal government, given all the other considerations it has on its plate. But this group helps us respond to consultations. So, when the government’s looking for advice, we collaborate on presentations about things we’d like them to better understand, or things we’d like to challenge or explore further.

JL: It’s been nearly a year since Coinbase launched in Canada. How’s it going?

LM: Our business is growing. Canadians are interested in crypto. Coinbase has built an incredible brand of trust and security around the world. We spent a lot of time building a very simple platform. And it’s been a lot of fun helping Canadians understand the opportunity.

We still have a lot of work to do. We need to help merchants accept digital assets and help Canadians use digital assets and stablecoins within their day-to-day lives. We have opportunities to provide more efficiencies within the financial system.

Now we’re working on making it as easy as possible for Canadians to move large amounts of money. One challenge is expanding our payment rails to get money in and out of Coinbase—we’re working on that infrastructure. And generally, we’re thinking about how we can service higher-net-worth individuals in Canada. Because our wealth industry isn’t participating in this space today, there’s a great opportunity for Coinbase to help high-net-worth individuals and institutions looking to gain exposure to digital assets.

JL: Any final thoughts you’d like to share about the future of crypto?

LM: A lot of Canadians are, you know, reasonably skeptical. There’s a big opportunity for people to educate themselves on what digital assets are and what they aren’t. There are a lot of misconceptions. Most people have been learning about the higher-risk sort of volatility around digital assets, but there are many opportunities for digital assets to have a significant impact in the world and transition our global economy.

Read more about crypto:

• Bitcoin is surging—what’s the prediction for crypto in 2024?
• How to navigate growing crypto regulation in Canada
• Should you consider ETFs that include crypto?
• 10 common crypto scams and how to avoid them
• What you should know about cryptocurrency tax in Canada